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A CASE STUDY ON MCDONALDS SUPPLY-CHAIN

IN INDIA

Article January 2013

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Asia Pacific Journal of Marketing & Management Review__________________________________________ ISSN 2319-2836
Vol.2 (1), January (2013)
Online available at indianresearchjournals.com

A CASE STUDY ON MCDONALDS SUPPLY-CHAIN IN INDIA

KSHITIZ SHARMA

Assistant Professor at Alliance School of Business, Bengaluru

_____________________________________________________________________________________

ABSTRACT
McDonalds is the world leader in QSR. Their presence in 118 countries with 33,000 restaurants
glorifies its position as world leader and as fast food giant. This huge network is not easy to
manage where guest expectations are clean, hygienic, tasty and quick food every time. The credit
of this successful availability goes to the unique supply chain management and control over this
entire huge network. McDonalds is present in more than 40 cities of India with 250 eating
outlets and adding more every now and then. This huge supply chain is entirely outsourced
without any legal contact with them. Some unique features of this supply chain managements are
lean management, multi-layered supply-chain, cold chain, Hub and Spoke system. For training
their staff company takes all its measure through intensive programmes like Supplier Quality
Management Systems (SQMS) and the Distributor Quality Maintenance Program (DQMP). The
explained model will help to understand the flow of supply chain.

KEYWORDS: multi-layered supply-chain, cold chain, Hub and Spoke, SQMS, DQMP
_____________________________________________________________________________________

INTRODUCTION

McDonalds is a limited menu restaurant is characterised by speed of operations. McDonalds is

the world leading retailer with more than 33,000 restaurants in 118 countries serving more than
67 million customers each day. In India, the first outlets of the chain threw open their doors to
the public in Delhi and Mumbai in 1996 within one month of each other. McDonalds is present
in 40 Indian cities with 250 restaurants and serves 650,000 customers daily.

THE FOOD RETAIL INDUSTRY

Internationally, no doubt McDonalds is considered the largest food service retailer in the world.
The first restaurant was established in 1955 in Des Plaines, Illinois, USA. It emerged in Indian
territory in 1996 eyeing the informal dining-out industry in India which is estimated at $74
billion a year. The fast food industry in India is estimated to be $12-$14

THE INTRICATE SUPPLY-CHAIN

The strength of McDonalds India employees amounts 9,000 people including restaurant staff.
But the surprise lies in its unique and intricate supply chain network which is managed by just
five people across the whole country. Including the Quality Assurance people, this figure rises to
just eight people who are all responsible for its efficient supply chain Indian territory.

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Online available at indianresearchjournals.com

SUI GENERIS NETWORK

The supply-chain network of McDonalds is of its own kinds:
100 percent outsourced
Lean with no back-up staff and no frills.

The company is enjoying growth of 30-40 percent every year in India. The credit goes to the
proper research work done before launching McDonalds in India. The experts set together and
coordinatedgroundwork was done to ensure the successful functioning of its demand and supply
system. It was from 1990 onwards, expert teams happened to be in India to check the strength of
Indias logistics industry, the reliability of its transport sector, and resource availability. The
result was an extremely effective supply-chain at optimal level in place despite of Indias weak
infrastructure.

In context to Indian market special menus with religious and cultural sentiments were designed
and in six years time the company was ready with its entire supply chain. McDonalds which is
known for its beef burgers free of beef and pork in Indian subcontinent.

MULTI-LAYERED SUPPLY-CHAIN
The McDonalds supply chain is both critical and multi-layered. There are two categories in food
ingredients supply;
Tier-I and Tier-2 suppliers as reflected from figure 1.

In Tier-I there are 14 core suppliers-provide processed products e.g. Vegetable and chicken
patties comes from Vista Processed foods Pvt Ltd. , French fries, potato wedges and hashbrowns
by McCain Foods India Pvt. Ltd. And so on.

In Tier-2 suppliers there are growers and processors who provide lettuce and potato, poultry
items and coating systems that are used for coating the chicken and vegetable patties. The flow
of ingredients are from Tier-2 to Tier-I suppliers who process them.

Now, the fleet of refrigerated trucks transport these processed foods to the companys
Distribution Centers(DCs). These trucks have been specifically maneuvered for variability of
McDonalds products. These are Multi-temperature and single temperature trucks into practice
where 250 McDonalds Indian restaurants are provided on time fast delivery. This is not
unidirectional, it also include the significant aspect of return logistics. Hence the empty bottles
and racks are available for further processing. Plastic crates are used for buns to ensure their
quality.

With four Distribution Centers across the country all 250 restaurants are served effectively. And
every new outlet addition is capably handled by these DCs within in ten days in the country. The
Noida and Mumbai DCs are primary Distribution Centers owned by the company. The other two
Distribution Centers are in Bengaluru and Kolkata are housed in leased properties. The system
that is used to manage link between Restaurant and DCs is a hub-and-spoke model where the
DCs act as hubs. McDonalds transportation has been completely outsourced and since 80
percent is refrigerated truck movement, the company has a dedicated fleet which transports their
goods.

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 Asia Pacific Journal of Marketing & Management Review__________________________________________ ISSN 2319-2836
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Online available at indianresearchjournals.com

McDonald Supply Chain in India

Figure-1

RADHAKRISHNA FOODLAND PVT. LTD.

Distribution Partner (no (DISTRIBUTOR PARTNER)
legal agreement)

McDonalds India DC1

Hardcastle Restaurants Private Limited
Noida
Connaught Plaza Restaurants Private Ltd
McDonald exhibit control over suppliers PRIMARY
without any signed contract DCs DC2
Mumbai
(Distributio
Tier 2 Tier1 n Centre)
Supplier Supplier
DC3
40 suppliers- provide 14 core suppliers-provide Bengaluru
Lettuce, Vegetables, processedproducts e.g. Vegetable and Secondary
Potato, Poultry chicken patties comes from Vista
Farms, coating for DC4
Processed foods Pvt Ltd. ,French fries,
vegetables& Patties, Kolkata
potato wedges and hashbrowns by
Dynamix Group, Mrs. McCain Foods India Pvt. Ltd.
Bectorsetc.

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Vol.2 (1), January (2013)
Online available at indianresearchjournals.com

HUB & McDonald exhibits

PULL-SUPPLY Chain Beverage
SPOKE control over DCs:
System Partner-
System KPAs
Coke
Requisition Order
Administration
(Direct
Restaurant to DC, Efficiency, cases
supply to
managed per man
DC to Supplier Restaurants)
hour, warehouse
and production takes efficiency, overtime,
place. cases handled per trip,
truck utilization.
R-Restaurant HACCP

Figure-2

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Online available at indianresearchjournals.com

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Asia Pacific Journal of Marketing & Management Review__________________________________________ ISSN 2319-2836
Vol.1 (4), December (2012)
Online available at indianresearchjournals.com
OUTSOURCED BUSINESS
The essence of the effective supply-chain model is undoubtedly attributed to its unique concept
of outsourcing. The company has a 100 percent outsourced supply chain, which is a rare case in
industry giants. But McDonalds has complete control over its functioning. The performances of
outsourced companies are monitored on Key Performance Indicators (KPIs).

The figure highlights the suppleness of its supply-chain under

three principles to which the company adheres unwaveringly,
the principles of trust and collaboration between the brand, the
owners or operators, and the suppliers.
McDonalds has a total of 40 suppliers, in which 14 are the
core suppliers, known as Tier-1 suppliers, they supply directly
to the fast food chain.

Table 1
Tier-I Suppliers
Cheese Dynamix Dairy Industries Ltd., Pune
Dehydrated onions Jain Foods, Jalgaon
Iceberg lettuce Trikaya Agriculture, Pune
Chicken patty Vista Foods, Taloja
Veg. Patty, Veg. nuggets,
Kitran Foods, Taloja
Pineapple/Apple pie
Chicken (dressed) Riverdale, Talegaon
Buns Cremica Industries, Phillaur
Eggless mayonnaise Quaker Cremica Pvt. Ltd., Phillaur
Sesame seeds Ghaziabad
Iceberg lettuce MeenaAgritech, Delhi
Fish fillet patties Amalgam Foods Ltd., Kochi.
Iceberg lettuce Ooty Farms & Orchards, Ooty
Finns Frozen Foods & Jain Foods
Vegetables for the patties
(Nasik, Jalgaon)
Mutton and mutton patties Al Kabeer, Hyderabad
Source: Business India, October 4, 1999.

The rest are Tier-2 suppliers. Relying on local players, most of the suppliers are local. Some
internationally famous foreign players like McCain Foods India are also the part of supply team.
McCain set up its Indian business when McDonalds ventured into the fast food business in the
country.

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For supplier to remain in the main stream, the terms of work are very rigorous. Its a whole lot of
responsibility with qualitative assurance lies on suppliers. A companys stellar credentials are not
enough; the suppliers job does not end when the product leaves his premises, rather it ends only
when the customer consumes it. McDonalds expects its suppliers to personally ensure the
quality of their products to skirt the risk factor. Coca Cola, the beverage partner impart water
management knowledge to the restaurant staff to ensure potable quality of drinking water.

FAITH IS THE KEY

McDonalds has no legally signed agreements with its suppliers. It is a simple handshake
relationship with the suppliers. The policy with suppliers is very clear; one product-one supplier
relationship. The policy has been proven as long-term relationships at every time.

The fast food chain sells 30 or 35 independent Stock Keeping Units (SKUs) at its outlets. With
various combinations (a meal can be small, medium or large, while a Coke can also be sold as
regular, medium or large), there are 100-150 SKUs which are sold to customers. Limited
SKUs,have ensured speedy service and ease to maintain stock keeping.

The major demand (80%) is fulfilled by 14 core suppliers and whenever addition is there in
restaurant line those 14 suppliers are the first choice.

SOLE DISTRIBUTION PARTNER

The entire distribution of McDonalds products in India is handled by Radhakrishna Foodland
Pvt. Ltd, the only distribution partner. RKFL manages the four DCs and since it has a transport
division, handles the truck movement in the supply-chain right through the country (Figure-2).
McDonalds exhibits control on its distribution partner to meet its standards of cold, clean and
on-time delivery .

RKFLexpertsmanages daily activities of raising purchase orders to suppliers, invoicing, keeping

track on working capital management, timely delivery, payments, etc. Any item required, is
sourced directly from RK. There are only two products, buns and Cokes, which are sent directly
to the restaurants. Buns have a limited shelf life, hence they are sent directly to the outlets. Coca
Cola has its own distribution system which ensures quick dispatch of its products.

As with its suppliers, McDonalds has no legally documented Service Level Agreements (SLAs)
with RKFL. For distribution partner also McDonalds has set KPIs (Key Performance
Indicators). The DCs are assessed on several factors like
administration efficiency
the total number of cases managed per man hour,
warehouse efficiency,
overtime as a percentage of the total number of hours worked and in the case of
transportation,
the number of cases handled per trip,
truck utilization, etc.

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REFRIGERATED MOVEMENT OF PRODUCTS
The movement of edible goods is through a system of cold chain where fleets of truck transport
all the items, capable to carry different items all together as there are compartments created to
store frozen products at -180C to -250C, chilled products from 10C-40C and dry products at
ambient temperatures. Another feature is that truck containers are made with two side doors in
addition to the rear door. The side doors are used to unload products without disturbing the
products in the other temperature zones.
The entire effectiveness of supply-chain is based on the concept of pull-supply chain. The
restaurant issues orders to the Distribution Center which, in turn, routes the order to the supplier
and only then does the supplier produce it. The concept is also known as made to order. The
supplier thus maintains barely any extra stocks; only if there is a contingency, like the overhaul
or servicing of machinery, will the supplier produce surplus stocks. According to RK Foodland,
the fill rate to store is 99.8 percent.

DEMAND FORECASTING: 31Q SYSTEM

Demand forecasting for long term is based on an efficient concept known as 31Q system3
stands for the three years that the fast food chain will keep checking its plans, 1 represents the
detailed forecast of the next year and Q symbolizes the quarterly monitoring of these forecasts.
While preparing annual budgetsuppliers becomes a part of budgeting process. Usually, the
restaurants give a three-day to one-week forecast to the Distribution Center. The DC, in turn, has
a three-month rolling forecast with the suppliers which enable them to plan their production
schedules meticulously.

With 250 restaurants scattered across the country, lead times for delivery assume critical
importance.Every restaurant manager knows the exact time of arrival of each product which
enables the supply chain team to work backwards to ensure timely distribution.With a maximum
inventory of ten days in its system, McDonalds maintains an efficient inventory turn ratio of 36.

FOOD SAFETY & HACCP

Food safety is another critical area for quality standard. For this Hazard Analysis Critical Control
Point (HACCP) certification which ensures food quality is applicable. This is an industry level
certification and is applicable on all the suppliers of the fast food chain. Apart from HACCP,
there areother food safety systems like the Supplier Quality Management Systems (SQMS) and
the Distributor Quality Maintenance Program (DQMP) are also in practice. For processing and
manufacturing plants SQMS is applicable.The SQMS is a worldwide mandate for all
McDonalds suppliers and includes essentials of the HACCP control system, while also
contriving several principles of its own. The DQMS audits and checks the warehouses of the
chain.

Auditors worldwide are also trained on its SQMS and DQMP programs. Independent auditors
then audit plants and warehouses and allot scores to McDonalds facilities globally to ensure
highest standards.

QUALITY ASSURANCE
Taste of the food products is another parameter of Quality. For this McDonalds has developed
a Sensory Program. The centralized laboratory for this program is located in Hong Kong which

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Vol.1 (4), December (2012)
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prepares sensory experts. These personnel come both from the suppliers and Quality Assurance
teams. Every batch of a food product that gets manufactured at a suppliers plant is checked by
an approved sensory panel at the plant and scores are allotted to the product. Only a product with
minimum score is shipped out of the factory. Other measures are also taken in the form of at
random checks of outlets. Also, every quarter or half year, members of the management do a
product cutting with key suppliersfry a product, check its taste and allot scoresto check if
the product scores are moving in the right direction northwards. And lastly, samples of the
products that are manufactured in the country are shipped to the central laboratory at Hong Kong
which evaluates the products.

TECHNOLOGY AT ITS BEST

The entire system of supply chain is powered by technology to make it smooth and effortless.
Suppliers are using SAP while Distribution Centers are on RAMCO Marshall ERP with Cobra
software. These systems are used to automized upload of store orders. For assisting in day to day
functions of store, technologies have been developed e.g. track sales, enables restaurants to
schedule staff and send forecast orders to DCs, etc.

The company is tapping the high growth opportunities with customer satisfaction criteria
effectively and in this effort McDonalds added Mcdelivery, an innovative option which delivers
meals to the customers doorstep. This service has grown at stratospheric levels by more than
400 percent. Mcdelivery was first launched in Mumbai and Delhi in 2004.

CONCLUSION
McDonalds Supply Chain is quite uniquely handled with least number of employees on
McDonalds payroll. The control on outsourced entities is commendable. With ever growing
business of fast food McDonalds has laid down its systems efficiently and expanding at
enormous speed. The model can be replicated in other sectors as well.

REFERENCES:
1. http://www.mcdonalds.com/us/en/our_story.html
2. http://www.mcdonaldsindia.com/aboutus.html
3. http://www.food-service-europe.com/trendscout/hottrends/pages/
4. http://www.icmrindia.org/free%20resources/casestudies/McDonald%20food%20ch
ain.htm
5. http://sourcing3.com/blog/mcdonalds-india-supply-chain/3/
6. http://logistics.bafree.net/mcdonalds-india-supply-chain/

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